PM Kishida looks to make a splash with record stimulus

TOKYO • Japan's Prime Minister Fumio Kishida looked to shake off his cautious image and leave an early mark in his premiership with a bigger-than-expected stimulus package aimed at shoring up a sputtering economy and launching his new vision of capitalism.

The measures will have an overall scale of around 79 trillion yen (S$946 billion) and record fiscal support of 56 trillion yen, and would boost real gross domestic product by 5.6 per cent.

He also emphasised that the economy must get back on track before any tightening of the nation's purse strings.

"In a time of emergency, we must put together what is needed to protect the lives and incomes of people," Mr Kishida told reporters yesterday afternoon. "First we have prepared an economic stimulus policy, then we will discuss an extra budget employing all funding options including deficit bonds. Reviving the economy, then thinking about the fiscal situation: That's the order," he said.

With the measures, Mr Kishida is looking to kick-start his premiership with a large-scale commitment to righting the economy and laying some of the groundwork for what he says is a new vision of capitalism. He also promised he would look to attract more semiconductor manufacturers to Japan, including companies from the United States as he looks to shore up domestic chip production.

The unexpected boldness of the stimulus risks backfiring if markets and voters judge it to be excessive at a time when the economy is already expected to pick up from its summer contraction.

"The government came up with big economic packages last year, too, but they ended up not being able to use the money or having to repackage past programmes," said Ms Mari Iwashita, chief market economist at Daiwa Securities. "They make programmes for the money, but the money won't get used unless they also streamline laws and infrastructure. Without working on that, Kishida could just be repeating the same mistake," she said.

The latest government package comes after figures showed the economy shrinking for the fifth time in the last eight quarters. Japan's real gross domestic product is still smaller than it was 61/2 years ago, after its recovery sputtered on a summer resurgence of Covid-19 and a shortage of semiconductors that laid bare the country's supply chain vulnerability.

Still, economists already forecast the economy would recover this quarter as virus restrictions are lifted and activity picks up.

Meanwhile, Japan also plans to allocate more than 700 billion yen for defence in a supplementary budget, according to two government and ruling coalition sources who declined to be identified because the plan is not public.

That amount is up about 50 per cent from the previous high, logged in fiscal 2018, in terms of annual defence spending allocated in extra budgets, the Nikkei business daily said.

Part of the defence spending in the extra budget will be earmarked for patrol planes, transport aircraft and mines, the sources said. The supplementary allocation is likely to take the total defence budget for the fiscal year to March 2022 to more than 6 trillion yen.

Japan's defence ministry wants money for an indigenous stealth fighter and missiles that can travel more than 1,000km, among other features, while the country is also building up cyberspace and electromagnetic warfare capabilities.

BLOOMBERG, REUTERS